A short story of how a country can default in a few days

In 2000, Greece agreed with Goldman Sachs in a funding program (Ariadne), which has been renewed with new terms in 2001 leading to a second program (Aeolos), to supply money to the country. Greece granted the lenders the rights in using airports and gambling.
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The nature of this financial product was such that, lending appeared as selling and allowed Greece to exclude the amount of loan from the state expenses, thus display lower public deficit than the real one.
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Indeed, from NY Times:
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“In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.
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For all the benefits of uniting Europe with one currency, the birth of the euro came with an original sin: countries like Italy and Greece entered the monetary union with bigger deficits than the ones permitted under the treaty that created the currency. Rather than raise taxes or reduce spending, however, these governments artificially reduced their deficits with derivatives.
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But with the help of JPMorgan, Italy was able to do more than that. Despite persistently high deficits, a 1996 derivative helped bring Italy’s budget into line by swapping currency with JPMorgan at a favorable exchange rate, effectively putting more money in the government’s hands. In return, Italy committed to future payments that were not booked as liabilities.
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In Greece, the financial wizardry went even further. In what amounted to a garage sale on a national scale, Greek officials essentially mortgaged the country’s airports and highways to raise much-needed money.
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Aeolos, a legal entity created in 2001, helped Greece reduce the debt on its balance sheet that year. As part of the deal, Greece got cash upfront in return for pledging future landing fees at the country’s airports. A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans, despite doubts by many critics.”http://www.nytimes.com/2010/02/14/business/global/14debt.html?pagewanted=1&_r=0&sq=greece&st=cse&scp=2
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Therefore, the conclusions so far are:
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First: such “tricks” of hiding the real deficit were applied in other countries too, like Italy, member of the eurozone, with the “help” of JP Morgan, and
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Second: was proved that Goldman Sachs knew at least since 2000 the real figure of Greece’s deficit.
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Since No1 and No2 international investors in Athens stock market (Norges Bank Investment, Black Rock), are also key shareholders in Goldman Sachs and key shareholders of the three biggest rating agencies, means that, the rating agencies knew very well what was the real situation of the Greek economy all these years, i.e., the real deficit figure. However, CDS were in low-level, allowing Greece to borrow at low interest.
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However, the story continues differently, as follows:
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In the mid-October of 2009, Goldman Sachs suggested to Greece a new financial product which would ease, at great extent, the huge borrowing needs of the country for the rest of 2009 and 2010 since some older bonds, of huge value, were expiring during that period.
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However, Goldman’s proposal was not accepted by the Greek side. A few days later, Fitch downgrades Greece from A to A-, leading the country out of the top rating category. At the same time, stocks of the National Bank of Greece were sold massively in the NY stock market, as well as, subsequently, to the Athens stock market leading general index to a significant fall. At the same time, the price of Greek bonds was falling, the price of Greek CDS and interest was rising, as well as the cost of lending for Greece.
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During the first days of November, a team of Goldman Sachs arrived in Athens to persuade the Greek side change its mind and close a new deal of financial lending, according to which the Bank of China would be involved in lending Greece, gaining some share in the National Bank of Greece and in the Greek Organization of Railroads, as a return.
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While the negotiations were in process, the stock price of National Bank of Greece was rising in NY and Athens stock markets. At the same time, the pressure on Greek bonds and CDS stopped. Eventually, negotiations were not successful, as the Greek side rejected Goldman’s proposal for good.
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Nearly the next day of this rejection, massive stock selling of the National Bank of Greece was recorded again in NY stock market, as well as stocks of the big Greek banks Alpha and Eurobank, and finally, stocks of the whole Greek banking sector. Prices of the Greek bonds rapidly dropped while Greek CDS and loan interest were rising rapidly, bringing Greece closer to default, as it was more and more difficult to re-fund her debt.
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On December 12, Fitch downgrades Greece further, rating the country with BBB+, while announced that further downgrades are possible. S&P with Moodys followed, downgrading Greece during December. The result was a massive selling of Greek bonds and skyrocketing of country’s lending cost.
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This means that, for at least 10 years there was no problem with interest, despite that everyone knew the real deficit figure, but the problem suddenly appeared in 2009 when, “accidentally”, the Greek government rejected Goldman Sachs’ proposal for a new “financial product”. Within a short time, rating agencies downgraded Greece skyrocketing her lending cost.
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In other words, as long as Greece was playing the game of Goldman Sachs, giving economic benefits inside the Greek territory, there was no problem with lending. When the new government stopped giving such benefits, probably because no one knew where would lead in the future, international banksters-speculators mobilized every mean that they had (rating agencies, media etc.), in order to show who is the boss and that there is no way for the country to avoid default, except of playing with their rules.
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Since the beginning of the crisis, mainstream media tried to downgrade the significance of this story and put the blame for default exclusively to the “corrupted” public servants, labor unions and generally “lazy” Greeks who lived beyond their means.
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Propaganda continues even today, despite the ongoing failed policies that ruined country and led millions of Greeks to poverty, and peaks every time that the lenders are about to impose new destructive measures, while the systemic mouthpieces often call such stories as “conspiracy theories”.

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About athenianvoice

Kosmas Loumakis - Sociological consultant, analyst, field operative and tactical field coordinator of national and regional social projects in Sweden. Was contracted for almost two decades by governmental bodies and NGO's, in governmental gang crime and extremism preventive efforts.
Have produced a number of socio pedagogic action plans and developed methods, field tactics and strategies for gang crime and extremism preventive projects.

Greece has, despite its own bravery and immense sacrifices throughout its modern history, continuously been hindered by the European empires, and now EU and US, from achieving what the Greeks clearly always has fought for. Themistocles’ Democratic Alliance of Athens aimed for it in the Battle of Salamis. The ”Friendly Companionship”, the freedom fighters against the Ottomans aimed for it, and the massive Greek Democratic Resistance, EAM/ELAS, against the occupying nazi and fascist armies, fought for it. The Greek people always wanted and will always want a truly Free, Independent, Sovereign and Democratic Greece, where the Justice is real and the Democracy panhuman.